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Monday, June 27, 2005

Wen Gives Market Guidance On Renminbi

China's premier - Wen Jiabao - put the world on warning yesterday that there will be no "undue haste" in the introduction of a more flexible exchange rate for China. Whether this is the result of the incompetent way this issue has been handled at the political level, or whether this was always going to be this way, China is now making clear that *she* will decide.

"Before representatives of more than 40 countries, Mr Wen reaffirmed China's longstanding commitment to move to a more flexible system, without disclosing when and how the change would be made. "By 'gradual progress', we mean to push forward the reform in a step- by-step manner. . . .and guard against undue haste," Mr Wen said.

"However, since this reform involves a wide range of areas and will have a far-reaching impact, it still requires a great deal of preparation to help create an enabling environment for all sides to sustain the possible impacts."

Mr Wen listed a lengthy set of considerations guiding policy on the renminbi, including its impact on domestic economic growth, job creation, financial stability, foreign trade and the ability of local companies to manage currency risk.

At the end of this list, Mr Wen said China would also "keep an eye on the economic and financial performance of neighbouring countries and regions, and of the world as a whole".

2 comments:

Wen's comments seem sensible enough. Why should anyone pretend that switching from a fixed to a flexible exchange rate regime is as simple as flipping a switch? The Chinese have a lot of work to do strengthening their financial sector, reforming SOE's, and boosting domestic demand before a floating currency is in their interests. I suspect that much of the pressure from the west to revalue the renminbi is meant as leverage to force the Chinese to open up their service sector (particularly banking) to foreign competition and investment.

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About

Edward 'the bonobo' is a Catalan economist of British extraction based in Barcelona. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

He is currently working on a book with the provisional working title "Population, the Ultimate Non-renewable Resource".

Apart from his participation in A Fistful of Euros, Edward also writes regularly for the demography blog Demography Matters. He also contributes to the Indian Economy blog . His personal weblog is Bonobo Land . Edward's website can be found at EdwardHugh.net.